Correlation Between Herc Holdings and Lincoln National

Can any of the company-specific risk be diversified away by investing in both Herc Holdings and Lincoln National at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Herc Holdings and Lincoln National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Herc Holdings and Lincoln National, you can compare the effects of market volatilities on Herc Holdings and Lincoln National and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Herc Holdings with a short position of Lincoln National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Herc Holdings and Lincoln National.

Diversification Opportunities for Herc Holdings and Lincoln National

0.15

Correlation Coefficient

Herc Holdings  Lincoln National

Average diversification

The 3 months correlation between Herc and Lincoln is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Lincoln National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln National and Herc Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Herc Holdings are associated (or correlated) with Lincoln National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln National has no effect on the direction of Herc Holdings i.e., Herc Holdings and Lincoln National go up and down completely randomly.

Pair Corralation between Herc Holdings and Lincoln National

Considering the 90-day investment horizon Herc Holdings is expected to generate 5.73 times more return on investment than Lincoln National. However, Herc Holdings is 5.73 times more volatile than Lincoln National. It trades about 0.08 of its potential returns per unit of risk. Lincoln National is currently generating about -0.03 per unit of risk. If you would invest  16,320  in Herc Holdings on October 10, 2024 and sell it today you would earn a total of  2,209  from holding Herc Holdings or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Herc Holdings  vs.  Lincoln National

Herc Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Lincoln National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lincoln National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Lincoln National is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Herc Holdings and Lincoln National

The main advantage of trading using opposite Herc Holdings and Lincoln National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herc Holdings position performs unexpectedly, Lincoln National can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lincoln National will offset losses from the drop in Lincoln National's long position.

The idea behind Herc Holdings and Lincoln National pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.